12.2 Commercial Auto Liability and Physical Damage

Covered Autos Liability

Under Section II, the insurer pays all sums an insured legally must pay as damages because of bodily injury or property damage caused by an accident and resulting from the ownership, maintenance, or use of a covered auto. The phrase that matters on the exam is arising out of the use — coverage is not limited to driving. The form expressly includes loading and unloading, so an injury while moving cargo onto a covered truck is a covered auto loss, not a general-liability loss.

The insurer also has the right and duty to defend any insured against a covered suit, even if groundless. Defense ends when the limit is exhausted by judgments or settlements.

Combined Single Limit vs. Split Limits

Commercial auto liability is almost always written as a Combined Single Limit (CSL) — one limit, such as $1,000,000, applying jointly to bodily injury and property damage per accident. This contrasts with the split limits often seen on personal auto (for example 100/300/50).

Worked split-limit example: A van with 250/500/100 limits injures three people ($300,000, $200,000, $150,000) and causes $120,000 of property damage. The per-person BI cap of $250,000 limits the first claimant; the per-accident BI cap of $500,000 limits total bodily injury paid; and property damage is capped at $100,000. A $1,000,000 CSL would instead apply one $1,000,000 pool to the whole accident — illustrating why fleets prefer a CSL.

Supplementary Payments

Supplementary payments are paid in addition to the limit of insurance:

• All defense costs and attorney fees the insurer incurs.
• Up to $2,000 for the cost of bail bonds.
• Up to $250 per day for the insured's actual loss of earnings to attend trial at the insurer's request.
• Premiums on appeal bonds and bonds to release attached property.
• Post-judgment interest on the entire judgment.
• Reasonable expenses the insured incurs at the insurer's request.

Trap: because these are above the limit, a $1,000,000 CSL with $80,000 of defense costs effectively delivers more than the stated limit to resolve the matter.

Key Liability Exclusions

The care, custody, or control exclusion is the classic trap: liability will not pay for damage to the customer's goods the insured is hauling — that exposure needs motor truck cargo coverage, an inland marine form.

Physical Damage Coverages

Section III offers three coverages, each shown only when a limit/deductible appears:

Rule: comprehensive and specified causes of loss are never bought together — comprehensive already includes everything specified causes of loss names, plus more. A budget buyer chooses specified causes of loss alone.

Physical Damage Loss Settlement (ACV Math)

Physical damage is settled at the lesser of the actual cash value (ACV) or the cost to repair or replace, minus the deductible. ACV equals replacement cost less depreciation.

Worked example: A delivery truck with replacement cost $60,000 is 40% depreciated and carries a $1,000 collision deductible. It is totaled.

• ACV = $60,000 − ($60,000 × 0.40) = $36,000
• Less deductible $1,000 = $35,000 paid

Partial-loss example: The same truck suffers $9,000 of repairable damage. Repair cost ($9,000) is less than ACV ($36,000), so the insurer pays repair cost minus deductible: $9,000 − $1,000 = $8,000. The deductible applies once per occurrence per coverage; comprehensive and collision deductibles are separate.

Towing, Transportation, and Built-In Extensions

Whenever physical damage is written, the BAP automatically adds two small extensions at no extra charge:

• Towing for private passenger autos — up to a stated amount (commonly $75) per disablement when comprehensive or collision applies.
• Transportation expenses after a covered THEFT of a private passenger auto — up to $20 per day, $600 maximum, beginning 48 hours after the theft and ending when the auto is returned or the loss is paid.

Trap: these built-in extensions apply only to private passenger autos, and transportation expenses respond only to theft. Broader rental reimbursement requires an endorsement.

Loss Conditions and Subrogation

After a loss, the insured must promptly notify the insurer, cooperate, protect the auto from further damage, and allow inspection before repairs. The insurer has the right to repair, replace, or pay for a damaged auto and may return stolen property at its expense.

The transfer of rights (subrogation) condition lets the insurer pursue a negligent third party after paying a loss. The two or more coverage forms condition prevents the insured from collecting twice when more than one of the insurer's policies applies. These mechanics — especially the lesser-of-ACV-or-repair settlement and the care-custody-control exclusion — generate most numeric and trap questions on commercial physical damage.